Verizon Profit Beats Estimates as Wireless Revenue Grows

By Scott Moritz -
Oct 17, 2013

Verizon Communications Inc. (VZ), co-owner of the largest U.S. wireless carrier, reported third-quarter profit that beat analysts’ estimates after customers paid more for their mobile-phone subscriptions.

Earnings rose to 77 cents a share, excluding one-time expenses, the New York-based company said today in a statement. Analysts had estimated about 74 cents on average, according to data compiled by Bloomberg.

The company’s mobile-phone business fueled gains in sales and profit, validating its decision last month to pay $130 billion for Vodafone Group Plc (VOD)’s share of the joint venture. By owning 100 percent of Verizon Wireless, the largest and most profitable U.S. wireless carrier, the company will keep all the earnings and give it more leeway to make network improvements.

While Verizon didn’t add as many subscribers last quarter as analysts estimated, the quality and speed of its wireless network helped produce better results, said Kevin Roe, an analyst with Roe Equity Research LLC in Dorset, Vermont.

“Very solid,” he said. “Despite subscriber net adds being a bit light and churn a bit higher, Verizon was able to still beat on wireless service revenue and margin.”

The company sold 7.6 million smartphones with the Apple Inc. iPhone representing 51 percent or 3.87 million of the total, Chief Financial Officer Fran Shammo said on the earnings conference call today.

Venture Dissolved

The finance chief also said the product development joint venture with cable companies such as Comcast Corp. and Time Warner Cable Inc. (TWC) has ended. The venture, best known for the May 2012 introduction of Viewdini, a mobile video portal, was created to develop new services that combined cable and wireless technologies.

The venture was dissolved in late August, Robin Nicol, a Verizon Wireless spokeswoman, said in an e-mailed statement.

“Evolving technology and market changes since the joint venture was formed have led all parties to conclude that a joint venture, per se, is no longer needed to deliver innovative services to customers,” Nicol said.

The companies will continue to cross-sell each other’s services in areas outside Verizon’s FiOS network.

Fixing Cities

Verizon said it expects capital spending is expected to be $16.6 billion this year, at the top of the company’s earlier projected range. The higher spending will come in the fourth quarter as the company continues “fixing cities” with wireless upgrades, Shammo said. Verizon is refitting its wireless network to a faster phase of long-term evolution, or LTE, in cities where heavy user traffic has slowed network performance.

Verizon rose 3.5 percent to $48.90 at the close in New York. The stock has gained 13 percent this year.

Third-quarter sales rose 4.4 percent to $30.3 billion, just above analysts’ average estimate of $30.2 billion. Net income attributable to Verizon climbed 40 percent to $2.23 billion, or 78 cents a share, from $1.59 billion, or 56 cents, a year earlier.

Verizon Wireless added 927,000 monthly contract users, compared with the average estimate of 1 million, according to a Bloomberg survey of 13 analysts. The average monthly bill for those customers rose 7.1 percent last quarter to $155.74, compared with the $154.63 analysts had predicted on average.

Chipping Away

In addition to AT&T Inc. (T), the second-biggest U.S. wireless carrier, smaller rivals are trying to chip away at Verizon’s dominance. Sprint Corp. (S) was taken over in July by Tokyo-based SoftBank Corp. (9984), which provided a $5 billion cash infusion to improve the carrier’s network. T-Mobile US Inc. (TMUS), meanwhile, has rolled out new services, such as an installment purchase plan for smartphones.

Verizon and AT&T also are in a race to attract heavy wireless Internet users. After AT&T beat Verizon in recent speed tests, Verizon has been “densifying” its network in an effort to support its service quality claims, Shammo said.

The company announced its deal to buy out Vodafone’s 45 percent stake in Verizon Wireless last month. To help fund the purchase, which is expected to be completed in the first quarter of next year, Verizon sold $49 billion in bonds -- the biggest company debt offering ever.